Notice & Comment

The United States Owes Tens of Billions to Insurers

The litigation to recover cost-sharing money has heated up in the Court of Federal Claims, with potentially enormous consequences for the public fisc. Three federal judges have now concluded that the United States is liable to insurers for missed cost-sharing payments. If their decisions stand, insurers could recover roughly $12 billion a year, every year, until Congress intervenes to stop the bleeding.

There are a lot of moving pieces, so I’m doing this in two parts. Today I’ll cover the details of the recent decisions. Tomorrow I’ll opine on what’s likely to happen on appeal. (Amy Lotven first broke the story; Charles Gaba and Dave Anderson both have good posts on the recent decisions.)

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Quick background: The Affordable Care Act created two forms of subsidies for exchange plans: premium tax credits and cost-sharing payments. To fund the tax credits, Congress linked them to a permanent appropriation in the tax code. But Congress didn’t adopt a similar appropriations measure for cost-sharing payments.

The lack of an appropriation put the Obama administration in a bind. Refusing to make cost-sharing payments might lead the ACA to totter, but a Republican-controlled Congress wasn’t about to fund them. So the Obama administration concocted a legal theory that Congress had, in fact, appropriated the money. That legal theory made zero sense, however, and the House of Representatives went to court to put a stop to the cost-sharing payments.

When President Trump took office, he tried to use the threat of ending the cost-sharing payments to force Democrats to negotiate with him over repealing and replacing the ACA. It didn’t work, and when Trump’s legislative strategy collapsed, he unceremoniously ended the cost-sharing payments.

But that was hardly the end of the matter. Even if Congress never appropriated the cost-sharing money, the ACA still contains within it a congressional promise to make cost-sharing payments. That kind of promise is enforceable in the Court of Federal Claims under the Tucker Act, with payment coming from the Judgment Fund—whether or not Congress has separately appropriated the cost-sharing money. Predictably, insurers filed a bunch of lawsuits seeking to force the government to pay up. I’ve been saying for years that they’ll probably win.

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That prediction is looking pretty good. In separate opinions released last week, Judges Sweeney and Wheeler of the Court of Federal Claims held that the government was liable for damages to insurers for failing to make cost-sharing payments. Judge Kaplan held the same late last year—indeed, she awarded Montana Health a $1.2 million judgment for 2017, which the federal government appealed in December.

None of these judges bought the Justice Department’s justification for refusing to pay. And good reason: it’s garbage. In the government’s telling, Congress never made a promise because it didn’t appropriate the money for cost-sharing payments. But it’s black-letter law that Congress can enter into a binding obligation, even if it doesn’t appropriate the funds to follow through on that commitment in the same statute. Congress might, for example, plan on appropriating the money at some later date. At any rate, the obligation stands until Congress changes course.

The cleanest support for that proposition, ironically, comes from the Federal Circuit’s decision in the risk corridor litigation. There, too, the court held that the ACA created a binding obligation to pay. The insurers still lost the risk corridor cases because, in the Federal Circuit’s view, later appropriations statutes implicitly narrowed the initial obligation. Here, in contrast, no subsequent congressional action qualified the initial cost-sharing promise—so the United States remains on the hook.

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But for how much?

The simplest approach is straightforward: insurers are owed every cent that Congress promised to pay them, period. If so, that’s about $12 billion each and every year that the cost-sharing obligation stays on the books. Insurers could buy us a damn border wall every year with that money.

But that simple approach overlooks that insurers have mitigated their losses. As I explained back in December 2017,

Silver loading has allowed insurers to sidestep most of the harm associated with the loss of the cost-sharing subsidies. Insurers haven’t hemorrhaged customers; instead, they’ve adapted. Indeed, some insurers are better off now than they were before: as premium subsidies increase, they’ll get more customers signing up for their gold and bronze plans. …  Giving [insurers] the full amount of the cost-sharing money wouldn’t put them in the same position they would have been in if the federal government adhered to its promise. It would give them a windfall. Contract law doesn’t require the courts to make contracting parties even better off than they would have been in the absence of a breach.

The mitigation question is where all the shooting is in the case. Insurers didn’t have a chance to mitigate their damages in 2017. But what about 2018? 2019? And beyond?

That’s what’s so striking about the decisions from the Court of Federal Claims so far. Three separate judges have all either held or strongly suggested that mitigation would play no role in their decisions. Here’s Judge Sweeney:

[The United States] does not identify any statutory provision permitting the government to use premium tax credit payments to offset its cost-sharing reduction payment obligation (even if insurers intentionally increased premiums to obtain larger premium tax credit payments to make up for lost cost-sharing reduction payments). … That insurers and states discovered a way to mitigate the insurers’ losses from the government’s failure to make cost-sharing reduction payments does not mean that Congress intended this result. Moreover, [the United States’] concern that Congress could not have intended to allow a double recovery of cost-sharing reduction payments is not well taken. The increased amount of premium tax credit payments that insurers receive from increasing silver-level plan premiums are still premium tax credit payments, not cost-sharing reduction payments. Indeed, under the statutory scheme as it exists, even if the government were making the required cost-sharing reduction payments, insurers could (to the extent permitted by their state insurance regulators) increase their silver-level plan premiums; in such circumstances, it could not credibly be argued that the insurers were obtaining a double recovery of cost-sharing reduction payments.

Judge Kaplan made much the same point last year. Judge Wheeler was slightly cagier: he dropped a footnote saying that the parties haven’t yet addressed whether silver-loading means that insurers have mitigated their damages. But he echoed Judge Sweeney in saying that “[n]owhere in the legislative history, statutory text or implementing regulations are CSR payments subject to alteration based on the availability of offsetting funds derived from premium increases permitted by state regulators.”

In other words, three different judges—two appointed by George W. Bush and one by Obama—appear impatient with the government’s argument that insurers have mitigated their damages. Which means that the Court of Federal Claims is poised to enter ongoing, multi-billion dollar judgments against the United States, with no end in sight.


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